Answer ... Private and public M&A transactions in Singapore are typically structured as a purchase of the issued shares of the company or as an acquisition of the business (ie, assets and liabilities) of the company.

For the acquisition of shares of publicly listed companies in Singapore, depending on the shareholdings being purchased, a mandatory, voluntary or partial general offer may be required to be made pursuant to the Singapore Code on Take-overs and Mergers issued by the Monetary Authority of Singapore.

There is a further regime under the Insolvency, Restructuring and Dissolution Act 2018, which provides for a statutory procedure called a scheme of arrangement that allows a company to be restructured. Mainly for the purposes of setting out restructuring terms to be agreed upon between a company and its creditors to allow the company to meet its debt obligations, a scheme may be arranged in the form of a transfer or issuance of shares.

Another statutory regime under Section 215A of the Companies Act (Chapter 50 of Singapore) provides for certain amalgamation procedures, whereby two or more Singapore companies may merge to form one amalgamated company.

A more uncommon acquisition structure is by way of a contractual offer followed by a minority squeeze-out in accordance with Section 215 of the Companies Act. Under this procedure, an offeror can acquire shares from shareholders of a Singapore company that have not accepted an offer for their shares if that offer has been accepted by shareholders holding 90% of the shares in the same company, subject to certain circumstances.

Answer ... A share acquisition tends to be less complicated, as it involves only the transfer of ownership of the shares, as compared to a business or asset sale, which involves the passing of title to each of the assets from the target to the purchaser. As a company’s assets can take various forms (eg, land, premises, leases, book debts and/or intellectual property), different methods of conveyance, transfer or assignment may be necessary to pass title for each type of asset.

The main advantages of a share sale over an asset sale are as follows:

• Transfer mechanism: As discussed above, a share acquisition requires only the shares to be transferred; while for asset acquisitions, each asset must be identified and separately transferred.
• Employees: A share sale does not involve a change of employer for the company’s employees, while an asset sale that involves the transfer of all or part of the business undertaking will invoke certain requirements under Singapore employment laws.
• Tax: Although share sales are subject to stamp duty, at current rates, they are much lower than current goods and services tax rates of 7% which may be payable on a sale of assets.
• Business continuity: As the target under a share sale will remain the holder of its licences and the contracting party in its contracts, there will be no major disturbances caused to the business of the company, since there is generally no need to enter into fresh contracts or licences; although the consent of the counterparties may sometimes be required.
• Post-transfer: As opposed to having a clean break after selling the shares of the target, the seller in an asset sale will still have ownership of the shell company that remains and will have to deal with winding-up if the intention is not to keep the company, unless there are assets remaining.

The main advantages of an asset sale as compared to a share sale are as follows:

• Selective acquisition: The buyer in an asset sale can pick and choose the assets and liabilities which are to be acquired. The buyer can even choose to purchase only the assets and not take over any liabilities.
• Shareholder approvals: Where only some (and not the whole or substantially the whole) of a company’s assets are being purchased, shareholder approval may not be required for the asset sale.
• Security: Since the Companies Act was amended on 1 July 2015 to remove the prohibition on financial assistance, security over a private company’s assets that are being purchased may be granted to lenders.
• Tax: The buyer in an asset sale may be able to claim capital allowances for each capital asset acquired under the Income Tax Act (Chapter 134 of Singapore), based on the costs paid for the asset.

Answer ... Such relevant factors usually include the following:

• profit maximisation considerations (a seller will generally choose the structure which is most profitable);
• due diligence considerations (due diligence for asset sales will usually require less time and resources);
• tax considerations and implications (eg, those in connection with payment of the consideration);
• the type of business of the target (eg, whether it is asset heavy);
• the commercial objectives of the parties (a buyer may wish to acquire only some and not all of the target’s assets);
• the number of parties involved (as opposed to the more usual bilateral negotiations, certain multi-party processes such as auctions may be relevant where there are multiple interested buyers); and
• the bargaining power of the parties (a party with stronger bargaining power will be more likely to implement its preferred structure).

Answer ... The parties to an M&A transaction usually first enter into a non-disclosure or confidentiality agreement prior to commencement of due diligence (where applicable) and preparation of the transaction documents. Parties may also enter into a memorandum of understanding or term sheet to set out the key terms of the transaction. Such term sheets can be legally or non-legally binding, depending on each party’s commitment to the transaction.

Answer ... Break fees are generally permitted in Singapore, although they are uncommon for private acquisitions. Where a break fee is to be agreed upon, the directors of the target will have to consider whether such agreement is in line with their statutory and general law duties to the company.

Where the acquisition is governed by the Take-over Code, the break fee must be minimal (which the Take-over Code defines as “normally no more than 1% of the value of the offeree company calculated by reference to the offer price”). The offeree company board and its financial adviser must also provide certain specific written confirmations to the Securities Industry Council (SIC), such as a confirmation that the break fee arrangements were agreed as a result of normal commercial negotiations.

Further, the Take-over Code also provides that:

• any break fee arrangement must be fully disclosed in the offer announcement and offer document; and
• the SIC should be consulted at the earliest opportunity in all cases where a break fee or any similar arrangement is proposed.

Answer ... Acquisition financing for larger transactions in Singapore is commonly that of debt financing in the form of loans granted by either a single lender or a group of lenders. Such debt is normally expected to be senior and secured by the target’s assets. It is also not uncommon for mezzanine tranches to be introduced further and subordinated to the senior debt.

Small and medium transactions are more usually funded by equity financing, which commonly takes the form of a share subscription combined with shareholder debt that will usually be subordinated to any existing external debt financing provided to the purchaser.

Answer ... A prospective buyer should engage tax and financial advisers at the outset to evaluate the tax considerations and commerciality of the deal. Legal advisers may be engaged concurrently or subsequently to advise on the transaction structure and the memorandum of understanding/term sheet.

The parties’ key stakeholders – such as the investment committee of the board, management, relevant business unit leaders and corporate development/transaction leaders (if any) – should be involved in the evaluation.

Answer ... There is generally no prohibition on a private M&A target paying adviser costs in Singapore. Since the Companies Act was amended in July 2015, Singapore private companies are now generally allowed to provide financial assistance for the acquisition of their own shares or those of their holding companies.

Answer ... (a) Commercial/corporate

Depending on the business activities of the target, a buyer should consider the regulatory requirements, licences, permits and/or certifications that are applicable. In Singapore, certain industries are regulated by governmental authorities and the target may be required to comply with certain industry-specific requirements.

A purchaser that is a foreign person or entity should consider whether the target is active in specified industries – such as newspaper publishing, broadcasting, defence and banking – where certain foreign ownership restrictions apply.

It is also important, during the due diligence process, to identify any clauses in the contracts and/or arrangements entered into by the target which would prohibit the target from entering into the proposed transaction or which would allow the counterparty to terminate such contract and/or arrangement upon consummation of the transaction.

(b) Financial

The buyer will need to review the indebtedness arrangements entered into by the target to satisfy itself that consummation of the transaction will not trigger a default under the financial arrangements or allow the lender to accelerate the return of the loan. If necessary, all consents and/or waivers from lenders should be obtained as conditions precedent to closing.

Singapore law requires that certain charges created by a Singapore company be registered with the Accounting and Corporate Regulatory Authority (ACRA). Accordingly, a buyer should consider whether the target has any registered charges which would restrict the ownership or use by the targets of its properties.

There are also certain forms of assistance schemes supported by Singapore governmental authorities pursuant to which grants may be obtained by a target. Buyers should consider whether all applicable terms and conditions to such grants have been complied with.

(c) Litigation

A buyer should consider whether there are any current, pending or threatened litigation, disputes, court proceedings and/or winding-up proceedings against the target. To this effect, specific court and insolvency searches (as well as bankruptcy searches, in relation to a target’s directors or authorised representatives) may be performed with the courts and regulatory authorities in Singapore.

(d) Tax

Buyers should consider whether a target has complied with the various taxation regimes in Singapore. For example, a target will likely be subject to corporate income tax on income accrued in or derived from Singapore, and on foreign-source income received or deemed received in Singapore, subject to certain exceptions.

The goods and services tax regime in Singapore also potentially requires certain registrations to be made in some circumstances; and there may be specific terms and conditions attached to such registrations.

(e) Employment

There are certain requirements under Singapore law in relation to the employment of Singapore citizens and permanent residents, as well as a separate regime related to the employment of foreigners. A buyer should consider whether the target has complied with these requirements.

For example, the target as an employer may be required to make contributions to the central provident fund for certain employees. The Employment Act (Chapter 91 of Singapore) also contains provisions relating to, among other things:

• working hours;
• overtime;
• rest days;
• holidays;
• annual leave;
• payment of retrenchment benefit;
• priority of retirement benefit;
• annual wage supplement; and
• other conditions of work or service applicable to certain types of employees. Where the target employs foreigners, for instance, a buyer should further examine whether:
• • the requisite employment passes or permits have been obtained; and
  • any accompanying terms and conditions have been complied with.

(f) Intellectual property and IT

A buyer should consider whether a target has applied for, or is the registered proprietor of, any trademarks, patents or other IP rights in Singapore. Searches may be conducted with the Intellectual Property Office of Singapore to show whether there are any such applications or registrations.

(g) Data protection/cybersecurity

The main statute governing data protection in Singapore is the Personal Data Protection Act 2012 (PDPA). A buyer should consider whether the target has collected, used and/or disclosed personal data, and if so, whether it has done so in compliance with the PDPA.

Although this is not strictly jurisdiction-specific to Singapore, a buyer should also consider whether any extra-territorial data protection or privacy laws apply to the target. For example, where the target has handled personal data of EU persons, it may be bound by certain obligations under the EU General Data Protection Regulation.

(h) Real estate

Under Singapore law, a target will have had to pay stamp duty on purchases of real property or for property leases. Further, a lease in Singapore must be registered with the Singapore Land Authority if such lease is for a period of more than seven years. A buyer should consider:

• whether the target owns or leases any real property; and
• whether the relevant requirements under Singapore law have been complied with (eg, foreign ownership restrictions).

Answer ... As discussed in questions 3.1(c) and (f), public court and insolvency/bankruptcy searches and IP searches are commonly performed for legal due diligence.

There are also certain corporate profile searches that may be performed with ACRA that would disclose a target’s general corporate information, such as the identity of its shareholders and directors.

Answer ... Pre-sale vendor legal due diligence is not common in Singapore and is usually only ever undertaken by sellers in private equity transactions where bidding is involved.

Answer ... As mentioned in question 3.1(a), in Singapore, there are:

• certain foreign ownership restrictions for newspaper and broadcasting companies; and
• regulatory approvals required for share transfers in certain regulated industries, such as those of licensed telecommunications and utilities companies, insurers, capital markets services licence holders, banks and trust companies.

Transactions that could potentially substantially lessen competition in any market in Singapore are prohibited. Although it is not mandatory to notify the Competition and Consumer Commission of Singapore (CCCS) of every M&A transaction, a notification may be made to avoid risks of subsequent investigations by the CCCS or sanctions where the CCCS subsequently finds that the merger will likely lead or has led to a substantial lessening of competition in Singapore.

Answer ... For private M&A deals, there is generally no supervising governmental body, as there is generally no regulatory approval required, save for those relating to regulated industries as discussed above under question 4.1. However, some requirements under the Companies Act regime, which is overseen by the Accounting and Corporate Regulatory Authority (ACRA), may be relevant to an M&A transaction. For example, a target will usually be required to file certain information on changes in its share ownership with ACRA.

For public takeovers, the Securities Industry Council (SIC) administers and enforces the Take-over Code, and has powers under the law to investigate any dealing in securities that is connected with a takeover or merger transaction and summon any person to give evidence or produce any document or material necessary for the purpose of such investigation. If the SIC finds evidence that a criminal offence has been committed, it may accordingly make recommendations to the prosecutorial authorities in Singapore.

The SIC is part of the Monetary Authority of Singapore (MAS), which is the regulator for the banking, insurance, financial, securities and futures industries in Singapore. Approvals or waivers may have to be sought from the MAS for certain M&A transactions.

Where the target is listed on the Singapore Exchange (SGX), the SGX Listing Manual Rules will apply. The Listing Manual is issued and administered by the Singapore Exchange Securities Trading Limited, which is empowered under Singapore law to apply to the court for a court order to enforce compliance with the Listing Rules – although this power has been rarely, if ever, used. In practice, the SGX may issue reprimands or, more drastically, direct a delisting where a listed company fails to comply with the Listing Rules.

As also discussed under question 4.1, the CCCS is the governmental body that oversees merger control and antitrust matters for M&A transactions.

Answer ... For a sale of shares, stamp duty is payable on each instrument of transfer at the rate of 0.2% on the higher of:

• the purchase price; and
• the net asset value of the shares.

Stamp duty is not payable for transfers of scripless shares (ie, shares of public companies listed on the SGX where the transfer is processed over the Central Depository).

For a sale of assets, stamp duty is payable only on transfers of real property. For non-residential immovable property, buyer’s stamp duty is at the following rates:

• 1% on the first S$180,000;
• 2% on the next S$180,000; and
• 3% on the remainder.

Unless otherwise agreed between the parties, the buyer is liable to pay stamp duty. Residential immovable property may attract seller’s stamp duty if disposed of within four years of purchase.

Goods and services tax, at the current prevailing rate of 7%, may also be payable on a sale of assets by a taxable person in the course or furtherance of business carried out by such person, subject to certain exemptions.

Answer ... Customary representations and warranties are generally given by the seller in relation to, among other things:

• capacity and authority;
• financial and corporate information of the target;
• confirmation relating to the accounts and financial condition of the target;
• material and commercial contracts of the target;
• employment;
• assets;
• intellectual property;
• information technology;
• legal and regulatory compliance;
• environmental issues;
• litigation;
• insurance;
• tax; and
• insolvency.

Breach of a warranty will result in a breach of contract, which will generally entitle the innocent party to claim for damages. Breach of a representation will generally entitle the innocent party to bring a claim for misrepresentation, which will allow for rescission of contract. In addition, breach of a representation may allow the innocent party to claim for damages.

However, sellers will generally try to limit themselves against their liabilities to the representations and warranties by imposing limits on potential claims.

Answer ... Typical limitations to liabilities include:

• limitation of the seller’s aggregate liability at an amount equal to or less than the purchase price (usually expressed as a percentage of the purchase price);
• limitation of the seller’s liabilities to contractual remedies only and excluding tortious remedies;
• a de minimis threshold whereby there is a minimum value of each individual claim;
• a basket threshold whereby there is a maximum value for all claims;
• a time limitation for when a claim must be brought by;
• preventing double recovery and requiring the buyer to exhaust available remedies prior to making a claim;
• no claim for loss of profit, business, contract or indirect/consequential loss, and/or where provision for the matter has been made in the accounts;
• no claim for loss due to the buyer’s actions or a change in law;
• any obligation to mitigate loss;
• whether there are any contingent claims to crystallise; and
• the seller’s ability to take over the conduct of a claim against a third party (subrogation rights).

Answer ... Warranty and indemnity (W&I) insurance may be arranged by either a seller or buyer. While the use of such insurance is not currently widespread, W&I insurance is becoming more commonly considered in Singapore to cover any losses suffered by buyers where there is a breach of certain warranties. Another consideration in obtaining W&I insurance will be to address gaps in the expectation of the buyer and seller and, where the buyer is the policy holder, in respect of fraud by the seller.

Generally, W&I insurance in Singapore will not provide protection in respect of the following:

• known claims or knowledge of an issue that could give rise to a claim;
• projections and forward-looking statements;
• financial obligations payable resulting from post-closing adjustments and completion account mechanics;
• fines and penalties that are uninsurable by law;
• consequential losses;
• liabilities arising from transfer pricing; and
• issues relating to anti-competitive agreements and practices.

Additionally, it is likely that insurers will exclude business interruptions caused by COVID-19 or any other similar situations.

Answer ... This is usually determined during the legal and financial due diligence stage of the transaction.

If a buyer is concerned about the risks of the seller being unable to meet the buyer’s claim, the buyer will generally consider the following approaches:

• obtaining a guarantee from a parent company or a related corporation;
• having an escrow account into which the purchase price may be deposited until the warranty limitation period has expired; or
• retaining part of the purchase price until the warranty limitation period has expired.

Answer ... Yes, it is generally quite common for parties to include post-closing restrictive covenants such as non-compete and non-solicitation clauses.

However, under Singapore law, such restrictive covenants are generally prima facie unenforceable, unless they are reasonably required for the protection of the legitimate proprietary rights of the buyer. The restrictions must also be:

• reasonable in scope, geographical area and duration; and
• not against the public interest.

The geographical areas will usually be areas in which the target has carried on business for a reasonable period before the closing date until the closing date.

A reasonable duration will typically be up to two years. However, the court will consider other factors in determining whether the duration is reasonable.

Answer ... M&A transaction documents typically contain clauses providing for the termination or adjustment of obligations in the event of a MAC, which allow buyers to terminate a transaction due to a MAC that would adversely impact on the nature the target business and/or value.

Answer ... The Singapore Code on Take-overs and Mergers issued by the Monetary Authority of Singapore can be found here.

A summary of the timeline as set out in the Take-over Code is set out below.

Answer ... Generally, there are no restrictions on a buyer building up a significant stake in the target. However, such restrictions will be subject to the following:

• substantial shareholder disclosure obligations;
• insider trading prohibitions (eg, if the buyer comes into possession of confidential price-sensitive information regarding the target, it cannot deal in the target’s shares until such information is public or no longer price sensitive);
• the mandatory offer obligation threshold not being triggered; and
• the minimum offer price rules under the Take-over Code.

Answer ... Pursuant to Section 215(1) of the Companies Act (Cap 50) of Singapore, an acquirer has the power to acquire the shares of the remaining shareholder of the target if it has the approval of not less than 90% of the total number of shares (excluding treasury shares) in the target, excluding shares already held by the acquirer or its related corporations (or their respective nominees) as at the date of the offer.

The rights of minority shareholders include, but are not limited to:

• calling for a poll vote on a resolution or matter at a shareholders’ meeting, provided that the minority shareholder falls into one of the following categories:
• • it comprises of five or more members that have voting rights at the meeting;
  • it represents 5% or more of total voting rights at the meeting; or
  • it holds 5% or more of the total sum paid up on shares that have voting rights at the meeting;
• calling for a general meeting if the shareholder (or two or more shareholders) holds 10% or more of the paid-up capital of the company which has voting rights;
• preventing a meeting from being held at short notice, as approval is required from shareholders holding a total of at least 95% of total voting right before a shareholders’ meeting can be called at short notice;
• requesting that the company circulate resolutions, if the shareholders hold at least 5% of the total voting rights or comprise at least 100 shareholders holding paid-up shares with an average of at least S$500 per shareholder;
• preventing the passing of a special resolution, as a special resolution requires at least three-quarters of the shareholders’ approval before it can be passed; and
• applying to court for the cancellation of abrogation of class rights if the company has different classes of shares and the shareholders hold at least 5% of the total class of issued shares that the application is for.

Answer ... The SIC requires the bidder’s financial adviser or any other appropriate third party to confirm unconditionally that the bidder has committed financing for the transaction. Such confirmation must be included in the offer announcement and the offer document.

Answer ... In order to delist shares of a company that is subject to a takeover offer, one of the requirements is the approval of the Singapore Exchange (SGX).

The SGX may approve delisting applications based on, among other things, the following:

• At least 75% of the shareholders of the company (excluding treasury shares and subsidiary holdings) must approve the delisting and must not be voted against by 10% or more of shareholders;
• A fair and reasonable exit offer (eg, cash) must have been made to the shareholders pursuant to an independent financial adviser being appointed to advise on the fair and reasonable exit offer; and
• The directors and controlling shareholders must not be precluded from voting on the resolution.

Answer ... Bumpitrage is not currently a common feature in public takeovers in Singapore.

Answer ... The consideration must at least be the highest price paid by the bidder or any parties during the offer period and within six months of the start of the offer period for a mandatory general offer or three months of the start of the offer period for a voluntary general offer.

Pursuant to the Take-Over Code, the mandatory offer must be in cash or accompanied by a cash alternative. On the other hand, the voluntary offer must be in cash or accompanied by a cash alternative in certain circumstances, but can also be in the form of security (eg, shares or facility) or both. The consideration will depend on, among other things, the buyer’s financial position and the market’s appetite for the shares.

Answer ... The inclusion of MAC provisions is commonplace in public takeovers. However, the specific scope and extent of application of MAC provisions are often negotiated. These negotiations usually centre on:

• the particular circumstances of the target and its industry (including market sentiment); and
• the respective bargaining power of the parties.

Answer ... Yes. Generally, shareholder irrevocable undertakings are sought by a bidder from shareholders to accept its proposed offer and to increase the chances of its offer being successful. Such undertakings must be set out in the offer announcement and offer document, and such document is to be made available for inspection.

Answer ... Hostile bids, though uncommon, are permitted in Singapore. In hostile bids, the target is unlikely to provide the bidder with due diligence access, as there is no legal obligation to do so. Any due diligence disclosure will be subject to the restrictions on disclosure set out in the Listing Manual of the Singapore Exchange, whereby the target is subject to continuing disclosure requirements which require it to keep its shareholders informed of all material information relating to it.

Documents typically required for a hostile bid include:

• an offer announcement;
• an offer document and acceptance forms; and
• the offeree circular, which includes an opinion from the independent financial adviser as to whether the offer is fair and reasonable and whether to accept the takeover offer.

The documents must be given to shareholders of the target to allow them to make an informed judgement on the merits or demerits of an offer.

During the period from publication of the initial offer document or offeree circular until the end of the offer, the target must promptly announce:

• any changes in information that it has disclosed in connection with the offer; and
• any new information that it would have been required to disclose during the offer period, had it been known at the time.

Answer ... When publicising the announcement of an offer, the respective boards of directors of the bidder and target will generally make separate announcements and issue circulars separately.

Answer ... Except where a contract has been entered into earlier, where a target board reasonably believes that a bona fide offer is impending, the target board cannot, without the shareholders’ approval, take any action which may frustrate such an offer or result in the target’s shareholders being denied an opportunity to decide on its merits.

Actions that may be taken include:

• issuance of shares;
• sale or acquisition of assets; and
• entry into contracts which are not in the ordinary course of business of the target.

Answer ... With COVID-19, larger-scale M&As have commonly been deferred and timelines have been delayed due to the uncertainty of financial and business markets and falling valuations. However, despite the scale-back, a total of approximately 482 M&A transactions valued at a total of US$59.2 billion were transacted in Singapore in 2020, in sectors such as real estate, energy and e-commerce.

As a result of COVID-19, more and more parties are introducing COVID-19 MAC clauses into their contracts where there is a gap between signing and completion, and are increasingly willing to negotiate on buyer-friendly clauses as compared to previous years.

Additionally, although it was already common for due diligence to be done via a virtual data room, COVID-19 has increased the adoption of virtual data rooms and other due diligence technologies for a more virtual environment for M&A transactions, including virtual closings.

The top M&A deals in Singapore in 2020 included the following:

• Singapore Life Pte Ltd acquired a 100% stake in Aviva Ltd through a merger;
• GIC Private Limited, together with its consortium partners, dominated the top M&A deals by acquiring multiple targets, including:
• • a 48% stake in ADNOC Gas Pipeline Assets LLC;
  • an 18% stake in Pacific Gas and Electric Corp; and
  • an undisclosed percentage stake in Convex Group Ltd;
• CapitaLand Mall Trust acquired a 100% stake of CapitaLand Commercial Trust through a merger; and
• Parc1 Tower II (Seoul) acquired a 100% stake in ARA Asset Management.

Answer ... As the government’s focus turns to rebuilding the economy as a result of the hit by COVID-19, it is highly possible that it may have an interest in attracting investments through introducing government support programmes and initiatives. This would also benefit in creating more jobs in the market.

Answer ... Buyers may wish to conduct in-depth analysis of the transaction and business of the target in each M&A transaction due to the uncertainty of COVID-19.

Given the uncertainty of COVID-19, parties may wish to consider the following:

• moving M&A transactions and due diligence to a virtual environment;
• including MAC clauses into their contracts which would allow buyers to withdraw or trigger lower valuation on the occurrence of economic events, pandemics, loss of financing or changes to prospects for the target’s business;
• looking to their legal counsel for support as we move to adapt to the new normal due to COVID-19, especially with various jurisdictions implementing new laws and regulations to deal with COVID-19;
• for buyers, identifying and reviewing areas of the target’s business which may be affected by economic events and pandemics;
• for buyers, looking for possible insurance coverage to cover any losses suffered by buyers and the target’s business which may be affected by COVID-19;
• taking appropriate steps for business continuity; and
• including pre-closing undertakings in the contract to ensure that the target can adapt to the effects of COVID-19 without having to seek the buyer’s consent.